The project of a national digital currency has been in the works in China since 2014, with the People’s Bank of China leading the project.
China is gradually rolling out its digital currency to replace banknotes and coins in the future.
China has been conducting tests with digital currency for some time now. In 2020, trials with some services, such as food delivery and rideshare apps, were conducted in Shenzhen and several other cities and were considered to be successful.
China has also already given away millions of dollars worth of the digital Yuan as part of the real-world trials of the currency, including some amount handed out by the local government in some cities via lottery.
According to a plan released in August by the Ministry of Commerce, there are plans to expand testing of the digital yuan in several regions, including the Guangdong-Hong Kong-Macao Greater Bay Area, over the next few years.
China’s payments arena is already digitalised, with Alipay and WeChat Pay systems at the top. In contrast to those payment systems which are owned by private companies, the digital Yuan should increase efficiency, being an actual currency run by the Central bank.
It is still unclear what technological platform the Chinese digital currency is running, with users usually having to download a separate app to receive digital Yuan.
As opposed to the world’s most popular de-centralized blockchain-based cryptocurrency, Bitcoin, which in proper applications offers users anonymity, the digital Yuan will be controlled by the People’s Bank of China.
The central bank, however, announced that its variation of cryptocurrency will allow anonymous transactions in small amounts.
In an article in Yicai Global, deputy governor of the People’s Bank of China Fan Yifei said that keeping a degree of anonymity “within a controllable range” could help with financial security. The payments would be anonymous to some degree, but data analysis tools could help the central bank to crack down on money laundering and other criminal offences. Also, the country’s telecoms operators will not be able to disclose the phone numbers and personal data of users to any third parties and the information would also be encrypted prior to being passed.
Despite the currency being centralised in the People’s Bank of China, Fan offered a “two-tier system”, with the PBOC distributing the digital yuan to commercial banks, while commercial banks would get the currency into the hands of consumers.
Digital Yuan Going Global
China has been strengthening Yuan’s positions in the global arena, with forecasts saying that it could become the third-largest reserve currency in the world after the US dollar and the euro within 10 years.
The PBOC has already started to lay the groundwork for its digital currency going global. Last month, the PBOC joined central banks from China’s special administrative region of Hong Kong, Thailand, and the United Arab Emirates to explore a digital currency cross-border payment project. PBOC has already tested the digital currency in Hong Kong, by allowing the local residents to use it to make payments in Guangdong Province.